INTERIM RESULTS HALF YEAR ENDED 30 JUNE 2013 OVERVIEW Results - - PowerPoint PPT Presentation

INTERIM RESULTS HALF YEAR ENDED 30 JUNE 2013

OVERVIEW

• Slower machine growth than expected, recent performance volatile
• MGD and content costs circa £9m in H1

Results impacted by...

• Key foundations in place, clear plan for operational delivery
• Joint incentive to grow Digital earnings

Digital integration progressing well

• Sustainable and reliable, enduring customer appeal
• Positive underlying metrics and healthy payback on new shops

Retail expansion remains compelling

• Key drivers of earnings growth established
• Balance sheet strength a platform for growth

Strong foundations will drive future performance

1

OVERVIEW

• Slower machine growth than expected, recent performance volatile

Results impacted by...

2

(0.6%) (0.2%) 2.7% 1.2% (0.0%) (5.5%) (9.2%) (10.0%) (8.0%) (6.0%) (4.0%) (2.0%) 0.0% 2.0% 4.0%

Jan Feb Mar Apr May Jun Jul Jun Jul

(0.5)% LFL movement for H1 (+3.2% inc new shops) YOY var in machine GW per shop

OVERVIEW

• Slower machine growth than expected, recent performance volatile
• MGD and content costs circa £9m in H1

Results impacted by...

• Key foundations in place, clear plan for operational delivery
• Joint incentive to grow Digital earnings

Digital integration progressing well

• Sustainable and reliable, enduring customer appeal
• Positive underlying metrics and healthy payback on new shops

Retail expansion remains compelling

• Key drivers of earnings growth established
• Balance sheet strength a platform for growth

Strong foundations will drive future performance

3

LADBROKES INTERIM RESULTS

HALF YEAR ENDED 30 JUNE 2013

Financial Overview Ian Bull, CFO Review of operations Richard Glynn, CEO Q&A 4

Net revenue (1) 563.0 529.0 +6.4% Net revenue ADJ (1) (2) 563.0 557.9 +0.9% Operating profit (1)(3) 85.7 106.9

• 19.8%

Finance costs (12.2) (16.8) +27.4% Profit before tax (1) 73.5 90.1

• 18.4%

High Rollers 3.4 20.5 Underlying EPS (1) (4) 7.2p 9.4p

• 23.4%

Dividend 4.3p 4.3p

• Net Debt (5)

£375.5m £386.9m +£11.4m

LADBROKES HALF YEAR END 2013

GROUP PERFORMANCE SUMMARY

Half Year ended 30 June 2013 £m 2012 £m B+/W-

Continuing operations before exceptional items (1) Excluding High Rollers (2) 2012 net revenue has been restated for the MGD/VAT impact to enable like for like comparison. The 2012 reported net revenue was £529.0m (3) Includes amortisation of acquisition related intangible assets of £1.7m in 2013 and £1.3m in 2012 (4) Underlying EPS excludes impact of High Rollers and is based upon expected full year tax charge of 10% in 2013 (2012: 5.2%) (5) 2012 comparison in position at 31 Dec 2012

5

• UK Retail down £18.1m – circa 50% from increased tax and content inflation
• Digital decline as anticipated – balance of profit in H2
• Corporate costs lower due to reduced bonus payments

GROUP OPERATING PROFIT

DECLINE PRIMARILY IN UK RETAIL

6

£106.9m £85.7m £(18.1)m £(0.6)m £(0.5)m £(4.2)m £2.2m 2012 H1 PBIT UK Retail European Retail Telephone Digital Corp Costs 2013 H1 PBIT

£91.3m £73.2m £(12.5)m £(3.2)m £(5.1)m £(6.0)m £(8.5)m £(6.3)m £17.0m £6.5m

2012 H1 PBIT OTC stakes OTC margin Euros GW Machine GW Freebets/GPT MGD New shop costs LFL costs 2013 H1 PBIT

Net rev (LFL tax basis) up 0.7%

• Impact of OTC decline largely Q1 (horseracing cancellations play a part)
• OTC stakes (11.2%) Q1 and (5.8%) Q2 – margin up 1.6 % points to 17.8%
• Machines gross win up 3.2%, net revenue (comparable) up 1.3%
• Total retail net revenue ahead 0.7% (down 2.5% on LFL basis)

2.5% increase 5.9% increase + £2.7m Q1 : £11.6m Q2 : £0.9m (exc. Euros)

7

UK RETAIL

TOTAL NET REVENUE UP, COST GUIDANCE LOWERED

£91.3m £73.2m £(6.0)m £(8.5)m £(6.3)m £2.7m 2012 H1 PBIT Net revenue MGD New shop costs LFL costs 2013 H1 PBIT

8

• New machine taxation impact £6.0m in H1 (MGD net of VAT)
• Operating costs up 5.9% for the period
• LFL costs up 2.5% with 1.0% driven by LFL increase in racing picture rights
• Expect operating costs for full year to be up circa 7%
• Benefit from 73 net openings in H1 comes in H2

2.5% increase 5.9% increase Includes £2.5m of LFL content inflation Consolidated net revenue position

UK RETAIL

TOTAL NET REVENUE UP, COST GUIDANCE LOWERED

UK RETAIL

MACHINE GROWTH SLOWER THAN EXPECTED

9

H1 ended 30 June 2013 2012 Var Machine gross win (£m) 209.5 203.0 +3.2% GW per shop per week (£) 3,636 3,653

• 0.5%
• Ave. no. machines

8,725 8,247 +5.8% Density per shop 3.92 3.86 +0.06

• Slowdown in growth across market
• Growth from addition of machines only
• LFL movement inconsistent across period
• June and July down 5.5% and 9.2%
• June/July affected by one off factors,

which obscure underlying rate

(20.0%) (15.0%) (10.0%) (5.0%) 0.0% 5.0% Jun wk1 Jun wk2 Jun wk3 Jun wk4 Jul wk1 Jul wk2 Jul wk3 Jul wk4 Versus Euro driven footfall Gross win per shop (10.0%) (6.5%) +2.0% (3.2%) (2.5%) (7.3%) (8.0%) (4.4%) (6.7%) (17.1%) (10.0%) (5.4%) Gross win per shop Excludes Euro effect

• 20,000

40,000 60,000 80,000 100,000 (200,000) (150,000) (100,000) (50,000)

• 50,000

100,000

Q1 Q2 Q3 Q4 Q5 Q6 Q7 Q8 Q9 Q10 Q11

GW Per Shop EBITDA Per Shop Net Cash Outflow

Net cash

• utflow

£s

• Chart shows average performance for shops opened in 2010
• Cash payback in less than 3 years
• Shops take at least first quarter to establish themselves
• Expect more in H2 from H1 openings (and those from Q4 2012)

GW & Ebitda per shop £s

UK RETAIL

PAYBACK PROFILE OF AVERAGE SHOPS

10

UK RETAIL

FOOTFALL RESILIENCE, WEATHER IMPACTS JULY

• Odds On data shows no overall change in footfall trend
• Stability corroborated by recent TNS data*
• July showing obvious impact of hot weather

* TNS Omnibus Jan 2013 – 87% betting shop regulars express intention to visit same or more often over next 12 months

Ave. footfall ‘000s p.w

• 100

200 300 400 500 600 Q3'11 Q4'11 Q1'12 Q2'12 Q3'12 Q4'12 Q1'13 Q2'13 Jul'13

Average 450k p.w July data suggests 10% - 15% decline

11

Euros

20 40 60 80 100 120 Q1 10 Q2 10 Q3 10 Q4 10 Q1 11 Q2 11 Q3 11 Q4 11 Q1 12 Q2 12 Q3 12 Q4 12 Q1 13 Q2 13

OTC GW per shop Machine GW per shop

UK RETAIL

RESILIENCE IN GW PER SHOP

(1) Analysis excludes greyhound tracks.

• OTC gross win stable on per shop basis
• Machines GW has driven growth over that time
• Overall shop GW stable
• Expansion of shop estate not cannibalising existing business

2083 : 0% 2103 : +1% 2151 : +2% 2228 +4% 82 89 88 89 84 90 88 89 94 96 93 91 95 95 Gross win per shop £k Average shop no’s & YOY increase

12

Gaming includes; Casino, Games & Bingo

DIGITAL OPERATING PROFIT

IN LINE WITH REVISED EXPECTATIONS

• Sportsbook growth offset by gaming and poker
• Confident in trading developments – 8.5% GW% is 2% points > 2009-2012
• Staking decline from removal of ‘bad’ business, customer transition & HVC
• Costs as planned – expected to be in line with guidance for FY
• Expect 2014 costs (pre depn) flat on like for like revenues.
• Additional £6/7m depreciation from annualisation and Playtech integration

13

£15.0m £10.8m £(3.7)m £(1.4)m £(2.5)m £(0.3)m £3.7m 2012 H1 PBIT Sports Gaming Poker Costs & Duty Betdaq 2013 H1 PBIT

TRADING DEVELOPMENTS

CONSISTENT INCREASE IN GW% MARGIN

• Improved client risk management and trading function overhaul
• Reworking of pricing strategy - focussing on right customers
• Beginning to see +ve impact of increased margin expectancy
• Expect sustainable improvement over long term

Start of trading initiatives

0.0%

• 0.5%
• 1.0%
• 2.8%
• 0.1%
• 0.6%

1.0% 3.0% 1.9% 2.2%

• 3%
• 2%
• 1%

0% 1% 2% 3% 4% Q1'11 Q2'11 Q3'11 Q4'11 Q1'12 Q2'12 Q3'12 Q4'12 Q1'13 Q2'13

All sportsbetting Year on year margin variance

Variance in combined UK Retail and Digital GW %

14

EXCEPTIONAL COSTS

MAJORITY RELATE TO PLAYTECH AGREEMENT

Exceptional charges £m

Business integration 6.4 Impairment loss 9.2 Playtech related 15.6 Other 6.2 H1 Total 21.8 Full year estimate Cash 26 Non cash 7 Total 33

£15.6m incurred in H1 in relation to Playtech Asset write down in mobile with move to Mobenga Removal of duplication between London & Israel Final part of transition Other – shop closures, corporate transaction fees Existing supplier discussions +ve but ongoing Estimate circa £11m H2 - £33m for full year 15

CASH FLOW

STRONG CASHFLOW PROVIDES FLEXIBILITY

£m 2013

EBITDA (1)

118.7

Net finance expense

(11.5)

Tax

(1.7)

Capex

(41.8)

Business combinations (2)

(19.4)

Other

9.0

Free cash flow

53.3

Dividend

(41.9)

Debt reduction

11.4

Opening net debt

(386.9)

Closing net debt

(375.5)

FY capex unchanged at £95m (incl any Playtech integration) Further debt reduction over period Net debt : EBITDA (1)(3) 1.6x Revised med term target 1.3x -1.5x £352m undrawn against RCF to 2016 £225m bonds in place to 2017 Dividend cover reduced until earnings recover

(1) Excludes exceptional items (2) Covers cash cost of Betdaq and Playtech agreements/transactions (3) Excludes High Rollers

16

LADBROKES INTERIM RESULTS

HALF YEAR ENDED 30 JUNE 2013

Financial Overview Ian Bull, CFO Review of operations Richard Glynn, CEO Q&A 17

DIGITAL – PLAYTECH AGREEMENT

KEY DETAILS

• Began 1 May 2013 (ending 2017)
• Agreement addresses three key areas
• Product / IMS
• Data & insight
• Marketing services/consultancy
• PEOPLE a key part of the deal
• Ladbrokes Israel wholly owned
• Expertise and experience
• Superior product suite with consistent back office and single wallet
• Tooling and capability to drive CRM – increased lifetime value

18

DIGITAL SYSTEMS

BUILDING ON INVESTMENTS TO DATE

Trading Platform Middleware Realtime Fieldbook (Liability management) Active Data Warehouse (Real time data) Bingo Playtech Poker Micro Casino Micro Games Micro & 3rd party Sportsbook Mobile MFuse Ladbrokes API Openbet 3rd party plug ins & Apps

19

DIGITAL SYSTEMS

HOW IT ALL FITS TOGETHER

20

DIGITAL PARTNERSHIP

CLEAR STRUCTURE, CLEAR OBJECTIVES

Ladbrokes Digital board – protocols, review, strategy London Israel Manila Gibraltar

Sportsbook marketing Trading expertise Odds Advisory Sportsbook product development Digital operations management Marketing planning & spend Promotional activity Customer development Frontline customer services Fraud management Payment processing Sportsbook bet acceptance Sportsbook risk management & trading decisions VIP customer management

Consultancy

21

DIGITAL PARTNERSHIP

PROGRESS TO DATE

PEOPLE

• Ladbrokes Israel in Tel Aviv now with 60+ employees
• Expect 100 by end 2013
• Removing duplication across business

PRODUCT

• Playtech casino (Vegas) launched on Ladbrokes.com and mobile
• Recent Net Entertainment agreement – more suppliers, more games
• Foundation Mobenga release for new customers
• Both plug into Intelligent Management System (IMS)
• New Openbet agreement facilitates IMS for sportsbook

22

DIGITAL PRIORITIES

INTERIM BENEFITS & KEY DELIVERABLES

SOME INTERIM BENEFITS

• Enhanced acquisition – affiliates/SEO/PPC
• Upweight VIP / HVC management
• Campaign effectiveness
• Vegas gaming

STILL TO BE DELIVERED

• Transition to Playtech for poker and casino (positive discussions ongoing)
• Develop & launch Mobenga offer for ALL customers
• Integrate sportbetting wallet into IMS
• Leverage consistent back office and CRM across all products

Focussed on delivery and full integration

23

6-20 yrs

UK RETAIL

RESILIENT, ENDURING APPEAL, STRONG CASH FLOW

Younger age profile Appeal of football & machines Integral part of betting experience Still 40% of ‘first bets’ Stable footfall and gross win per shop demonstrates longevity & appeal Good returns from new shops and refurbishments – IRR c. 30% on new

36% 39% 44% 70% 30% 27% 23% 14%

0% 20% 40% 60% 80% 2006 2010 2013 New 18-34 35-54 55+ 38% 59% 60% 60% 62% 41% 40% 40% 2009 2010 2011 2012 Digital Retail

Ladbrokes shops age profile Entry point 1 for ‘new’ customers

New customers defined as those who started betting in a shop or online within the last year. Data drawn from TNS Omnibus and Kantar Sport Online brand metrics survey. Demographics data from TNS Omnibus.

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UK RETAIL

INVESTING TO MAINTAIN MARKET LEADERSHIP

NOW Q1 2014

• C. 40% increase in gross win per shop since ‘09

Evolving & increasingly competitive marketplace Technology drives customer expectations Ongoing development of software will enable smarter customer campaigns Series of initiatives ahead complete new cabinet rollout in Q1 ‘14 25

UK RETAIL

EVOLVING OUR SHOPS – MORE CONTENT, MORE CHOICE

Self service terminals now rolling out

Enhanced product delivery – Sky, SSBTs, WiFi 1,550 SSBTs during Q3 – target BIP More content than competition – 5 channels from Sept Full control over broadcast output Enables localised content - relevant to customer 600 marketplace managers to deliver local strategies Promoting where and when we choose

A localised approach to promotions

26

UK RETAIL

AGGRESSIVE ON VALUE, SENSIBLE ON PRICE

Trading developments mean we can compete Aggressive pricing on right events at right times Delivering value for recreational customers Clear promotional messaging Promotional innovation Better insight into customer segmentation 27

INTERNATIONAL

PRAGMATIC APPROACH DRIVING OPPORTUNITIES

• Sportium now launching online
• Leveraging strength of retail brand
• Spanish launch in H2
• Mexican launch early 2014
• Spanish model – low investment, partnership with Cirsa
• Leading operator in Spain and Latin America
• Sportium c. 600 outlets, LFL growth despite economy
• Launching in Catalonia (Barcelona) early 2014
• Continuing to monitor new market opportunities
• Playtech enables faster .com growth
• Flexible approach includes JV, partnership or acquisition

28

SUMMARY

FOCUSING ON H2 DELIVERY

UK Retail – evolving offer to drive growth

• New machine rollout
• SSBTs
• SKY across estate
• More broadcast channels, more control over content

Digital – meeting key milestones

• Mobile rollout on Mobenga
• Sportsbook CRM & single wallet
• Migrate remaining gaming products
• Fully establish Ladbrokes Israel

29

Growth in 2014 and beyond

INTERIM RESULTS 2013

Financial Overview Ian Bull, CFO Review of operations Richard Glynn, CEO Q&A 30

LADBROKES HALF YEAR ENDED 2013

APPENDICES

31

Half Year ended 30 June Net revenue Operating profit(1) 2013 £m 2012 £m Variance B(W) £m 2013 £m 2012 £m Variance B(W) £m UK Retail 401.7 370.5 31.2 73.2 91.3 (18.1) European Retail 65.6 63.9 1.7 9.7 10.3 (0.6) Digital(2) 90.8 88.3 2.5 10.8 15.0 (4.2) Core Telephone Betting 4.9 6.3 (1.4) 0.4 0.9 (0.5) Corporate costs

• (8.4)

(10.6) 2.2 Total 563.0 529.0 34.0 85.7 106.9 (21.2)

(1) Operating profit is before exceptional items (2) 2013 includes £3.9m net revenue and £0.3m operating loss from Betdaq

LADBROKES HALF YEAR END 2013

NET REVENUE AND OPERATING PROFIT

32

Half Year ended 30 June Net revenue Gross win 2013 £m 2012 £m Variance B(W) % 2013 £m 2012 £m Variance B(W) % UK Retail 401.7 370.5 8.4 417.5 409.7 1.9 European Retail 65.6 63.9 2.7 66.9 65.1 2.8 Digital(1) 90.8 88.3 2.8 112.4 107.4 4.7 Core Telephone Betting 4.9 6.3 (22.2) 5.3 6.6 (19.7) Total 563.0 529.0 6.4 602.1 588.8 2.3

(1) 2013 includes £3.9m net revenue and £4.0m gross win from Betdaq

LADBROKES HALF YEAR END 2013

NET REVENUE AND GROSS WIN

33

Half Year ended 30 June Net revenue 2013 £m 2012 (restated) £m Variance B(W) % UK Retail(1) 401.7 399.0 0.7 European Retail 65.6 64.3 2.0 Digital(2) 90.8 88.3 2.8 Core Telephone Betting 4.9 6.3 (22.2) Total 563.0 557.9 0.9

(1) 2012 UK and European Retail net revenue has been restated to allow like for like comparison’s as to 2013 UK and European Retail net revenue where MGD replaced VAT for Machines from 1st February 2013. MGD is deducted from net revenue whereas VAT was deducted from gross win to arrive at net revenue (2) 2013 includes £3.9m net revenue and £4.0m gross win from Betdaq

LADBROKES HALF YEAR END 2013

RESTATED UK RETAIL NET REVENUE

34

EPS RECONCILIATION

CONTINUING, EX HR & REPORTED

35

Half Year ended 30 June 2013 2012 Variance B(W)

OTC Gross win margin 17.8% 16.2% 1.6pp Like for like OTC amts staked decline (10.9)% (0.7)% (10.2pp) Like for like OTC net revenue (decline)/growth (2.4)% 1.1% Like for like total costs (1) increase 2.5% 5.2% Like for like shop staff costs decrease (3.7)% (3.5)% Stake per slip (2) £8.12 £8.50 (4.5)% Average number of machines 8,725 8,247 5.8% Average weekly gross win per machine £929 £947 (1.9)% Average weekly machine gross win per shop £3,636 £3,653 (0.5)%

Like for like takes into account shop openings and closures

(1) Excludes VAT on Machines, MGD, Freebets and Gross profits tax (2) Slips exclude machines

UK RETAIL

LIKE FOR LIKE COMPARISONS AND KPIs

36

(2) Rent, rates and utilities (3) Pictures, data, levy, Sky (4) Depreciation = £17.7m (2012: £16.6m)

Half Year ended 30 June 2013 £m 2012 (1) £m Variance B(W)%

OTC gross win 208.0 206.7 0.6 Machines gross win 209.5 203.0 3.2 Total gross win 417.5 409.7 1.9 OTC net revenue 202.5 202.4

• Machines net revenue

199.2 196.7 1.3 Total net revenue 401.7 399.1 0.7 Associate income 1.6 1.6

• Gross profits tax

(30.3) (30.4) 0.3 Machine Games Duty (34.6) (28.6) (21.0) Staff costs (100.5) (99.1) (1.4) Property costs (2) (56.0) (51.4) (8.9) Content costs (3) (43.1) (36.4) (18.4) Other costs (inc. depn) (4) (65.6) (63.5) (3.3) Operating costs (265.2) (250.4) (5.9) Operating profit 73.2 91.3 (19.8)

(1) 2012 proforma to reflect the change from VAT on Machines to Machine Games Duty

UK RETAIL

FULL P&L

37

Half Year ended 30 June 2013 2012 (1) OTC £m Machines £m Total £m OTC £m Machines £m Total £m Variance B(W)% Gross win 208.0 209.5 417.5 206.7 203.0 409.7 1.9 Freebets (5.5) (4.9) (10.4) (4.3) (1.1) (5.4) (92.6) VAT

• (5.4)

(5.4)

• (5.2)

(5.2) (3.8) Net revenue 202.5 199.2 401.7 202.4 196.7 399.1 0.7

(1) 2012 proforma to reflect the change from VAT on Machines to Machine Games Duty

UK RETAIL

GROSS WIN ADJUSTMENTS

38

(1) 2012 proforma to reflect the change from VAT on Machines to Machine Games Duty (2) Fair value adjustments, freebets and VAT

Half Year ended 30 June 2013 £m 2012 (1) £m Variance B(W)%

Gross win 42.6 41.7 2.2 Adjustment to gross win (2) (1.3) (0.8) (62.5) Net revenue 41.3 40.9 1.0 Betting tax (4.3) (4.2) (2.4) Other costs (30.7) (30.0) (2.3) Operating profit 6.3 6.7 (6.0) Constant currency amounts staked decrease (6.1%) (3.3%) Constant currency gross win increase

• 8.9%

Shop numbers at the end of the period 292 293

IRELAND

P&L

39

• (1) Payments to third party software and platform providers and geographical partners
• (2) Includes depreciation of £6.1m in 2013 (£4.8m in 2012)

Half Year ended 30 June 2013 £m % of net revenue 2012 £m % of net revenue B(W)%

Net revenue 90.8 88.3 2.8 Betting tax (1.6) 1.8 (0.5) 0.6 (220.0) Levy and licenses (0.5) 0.5 (0.4) 0.4 (25.0) Staff costs (14.0) 15.4 (12.6) 14.3 11.1 Software and geographical partners (1) (11.7) 12.9 (11.2) 12.7 (4.5) Marketing (including affiliates) (26.4) 29.1 (24.6) 27.9 (7.3) Banking and chargebacks (3.5) 3.9 (3.5) 3.9

• Other costs (including depreciation) (2)

(20.6) 22.7 (19.2) 21.8 (7.3) Operating costs (76.7) 84.5 (71.5) 81.0 (7.3) Amortisation of acquisition related intangibles (1.7) 1.8 (1.3) 1.4 (30.8) Total operating costs (78.4) 86.3 (72.8) 82.4 (7.7) Total Digital operating profit 10.8 11.9 15.0 17.0 (28.0)

DIGITAL

FULL P&L

40

(1) A player who contributed to rake and/or placed a wager during the period

(2) A new player who has registered and deposited funds during the period

Half Year ended 30 June 2013 2012 B(W) %

Unique active players (1) (000s) 644 746 (13.7) Real money sign-ups (2) (000s) 274 342 (19.9)

DIGITAL

KPIs

41

(1) Revenue per unique active player for the half year

Half Year ended 30 June 2013 2012 Variance B(W) %

Sportsbook Gross win margin 8.5% 6.2% 2.3pp Unique active players (000s) 494 583 (15.3) Average monthly active player days (000s) 913 1,141 (20.0) Yield per unique active player (£) (1) 83 64 29.7 Casino Unique active players (000s) 155 199 (22.1) Average monthly active player days (000s) 153 190 (19.5) Yield per unique active player (£) (1) 163 145 12.4 Poker Unique active players (000s) 41 55 (25.5) Average monthly active player days (000s) 110 154 (28.6) Yield per unique active player (£) (1) 103 102 1.0 Games Unique active players (000s) 100 105 (4.8) Average monthly active player days (000s) 140 146 (4.1) Yield per unique active player (£) (1) 103 90 14.4 Bingo Unique active players (000s) 53 60 (11.7) Average monthly active player days (000s) 102 115 (11.3) Yield per unique active player (£) (1) 114 118 (3.4)

DIGITAL

KPIs

42